Conventional systems assign credit limits to customers in a two step process. First, a credit card issuer identifies potential customers based on information from credit bureaus, such as past credit history, prior declarations of bankruptcy, and the like. Once the issuer identifies the potential customers, it offers its credit card to them. The credit card offer typically extends high limits with its credit card accounts to the potential customers, such as $10,000-20,000. The issuer usually selects a credit limit equal to a tolerance level (i.e., an amount the issuer can afford to risk on a potential customer). The issuer then issues credit cards to those customers who accept the offer.
Second, after some long period of time, such as one to two years, the issuer considers whether to increase a customer's credit card limit by studying the customer's past performance. If the customer has made timely payments in the past, for example, the issuer usually increases the credit limit. Otherwise, the issuer holds the credit limit at its current level.
Two problems exist with the conventional systems. First, the credit card issuer typically grants high initial credit limits based solely on credit bureau information. While not questioning the accuracy of this information, past performance does not dictate future conduct. In other words, even a credit card holder with an exemplary credit record might use all of the initial credit without making any payments. As a result, the issuer would need to take action to recover its money, an act that might be futile if the card holder files for bankruptcy.
A second problem involves the long time period before granting a credit limit increase. Because the initial credit limit is typically large, credit card issuers usually wait a long period of time before even considering a credit limit increase. This might result in a loss of customers, if customers' requests for credit limit increases are denied.
Therefore, a need exists for assigning credit limits that minimize the risk to credit card issuers and that provide for rapid evaluations and credit limit increases.